139 research outputs found
Discrete-time probabilistic approximation of path-dependent stochastic control problems
We give a probabilistic interpretation of the Monte Carlo scheme proposed by
Fahim, Touzi and Warin [Ann. Appl. Probab. 21 (2011) 1322-1364] for fully
nonlinear parabolic PDEs, and hence generalize it to the path-dependent (or
non-Markovian) case for a general stochastic control problem. A general
convergence result is obtained by a weak convergence method in the spirit of
Kushner and Dupuis [Numerical Methods for Stochastic Control Problems in
Continuous Time (1992) Springer]. We also get a rate of convergence using the
invariance principle technique as in Dolinsky [Electron. J. Probab. 17 (2012)
1-5], which is better than that obtained by viscosity solution method. Finally,
by approximating the conditional expectations arising in the numerical scheme
with simulation-regression method, we obtain an implementable scheme.Comment: Published in at http://dx.doi.org/10.1214/13-AAP963 the Annals of
Applied Probability (http://www.imstat.org/aap/) by the Institute of
Mathematical Statistics (http://www.imstat.org
Optimal transportation under controlled stochastic dynamics
We consider an extension of the Monge-Kantorovitch optimal transportation
problem. The mass is transported along a continuous semimartingale, and the
cost of transportation depends on the drift and the diffusion coefficients of
the continuous semimartingale. The optimal transportation problem minimizes the
cost among all continuous semimartingales with given initial and terminal
distributions. Our first main result is an extension of the Kantorovitch
duality to this context. We also suggest a finite-difference scheme combined
with the gradient projection algorithm to approximate the dual value. We prove
the convergence of the scheme, and we derive a rate of convergence. We finally
provide an application in the context of financial mathematics, which
originally motivated our extension of the Monge-Kantorovitch problem. Namely,
we implement our scheme to approximate no-arbitrage bounds on the prices of
exotic options given the implied volatility curve of some maturity.Comment: Published in at http://dx.doi.org/10.1214/12-AOP797 the Annals of
Probability (http://www.imstat.org/aop/) by the Institute of Mathematical
Statistics (http://www.imstat.org
On the convergence of monotone schemes for path-dependent PDE
We propose a reformulation of the convergence theorem of monotone numerical
schemes introduced by Zhang and Zhuo for viscosity solutions of path-dependent
PDEs, which extends the seminal work of Barles and Souganidis on the viscosity
solution of PDE. We prove the convergence theorem under conditions similar to
those of the classical theorem in the work of Barles and Souganidis. These
conditions are satisfied, to the best of our knowledge, by all classical
monotone numerical schemes in the context of stochastic control theory. In
particular, the paper provides a unified approach to prove the convergence of
numerical schemes for non-Markovian stochastic control problems, second order
BSDEs, stochastic differential games etc.Comment: 28 page
On the monotonicity principle of optimal Skorokhod embedding problem
In this paper, we provide an alternative proof of the monotonicity principle
for the optimal Skorokhod embedding problem established by Beiglb\"ock, Cox and
Huesmann. This principle presents a geometric characterization that reflects
the desired optimality properties of Skorokhod embeddings. Our proof is based
on the adaptation of the Monge-Kantorovich duality in our context together with
a delicate application of the optional cross-section theorem and a clever
conditioning argument
Monotonicity condition for the -scheme for diffusion equations
We derive the necessary and sufficient condition for the monotonicity of finite difference -scheme for a diffusion equation. We confirm that the discretization ratio is necessary for the monotonicity except for the implicit scheme. In case of the heat equation, we get an explicit formula, which is weaker than the classical CFL condition.
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